What Are the Latest DAC Announcements?
India’s Defence Acquisition Council (DAC) has approved the Acceptance of Necessity (AoNs) worth ₹52,000 crore across the Army, Navy and the Airforce.
The approvals focus on modernizing the armed forces against modern drone and anti-tank threats, while also enhancing high-altitude intelligence gathering capabilities.
“We expect these AoN approvals, coupled with those granted over the last two years, to increase the overall addressable market for domestic players and enhance order inflow visibility,” Motilal Oswal’s note said, adding that the fast-track procurement procedure facilitates procurements exceeding ₹1.3 lakh crore across drones, EW systems and SDRs, with decisions to be made in the next six to 12 months.Motilal Oswal expects the defence sector to benefit from these opportunities as they already have strong order books and an incremental export opportunity can be an added benefit.
Here are the three stocks it recommends buying:
Bharat Electronics
Motilal Oswal has a “buy” rating on BEL with a price target of ₹510, and it ranks the stock as its top pick within the defence space. It values the stock at 45 times two-year forward estimated earnings.
The brokerage said that the company expects to receive the Quick Reaction Surface to Air Missile (QRSAM) orders worth nearly ₹30,000 crore in the next few weeks. Subsequent orders will be awarded thereafter.In addition to this, the ₹90,000 crore P 75I submarine deal is also in the final stages of negotiation, with the contract signing likely to take place by September this year, the brokerage said and BEL expects the electronics portion to account for nearly 30% of the total project costs and expects to cater to 50% to 60% of that.
Hindustan Aeronautics
Motilal Oswal maintained its “buy” rating on HAL with a price target of ₹5,500, valuing the stock at 30 times its two-year forward estimated earnings.
The brokerage has listed the stock as a potential beneficiary from the Naval Shipborne Unmanned Aerial Systems (NSUAS) from among the decisions taken on July 3.
Astra Microwave Products
Motilal Oswal has a “buy” rating on Astra Micro with a price target of ₹1,715, valuing the stock at 42 times its estimated two-year forward earnings.
Among the decisions taken on Friday, Motilal Oswal lists the company as a potential beneficiary for the Anti-Unmanned Aerial Vehicles Electronic Warfare Systems “Akash Tarang”, and the Active Protection Systems for tanks.
The company could also be part of the QRSAM orders for the TR modules and EW subsystems, the brokerage said.
Shares of BEL are up 5% so far this year, while those of Astra Microwave are up 90%. Shares of HAL have underperformed its peers, and are still at the flat line for the year.
